Best case scenario? The EU will undergo years of painful convulsions,
precipitating a new treaty that imposes greater centralisation and
restrictions on the fiscal independence of nation states

Whether Greece votes to back or reject austerity on Sunday, the euro in its current form is dead, and rightly so. The defective structures that underpin it have been shattered by the Greek nightmare, and trust within Europe is at a low ebb. Even a yes vote would not undo the damage, and a no vote would lead to an almost immediate Greek departure from the euro.

Germany’s best-selling newspaper, Bild, is a great barometer of opinion in the eurozone’s dominant power: it is staging its own, fake “referendum” among its readers, asking them whether they want to continue bailing out Greece or whether they should cut them off. There are no prizes for guessing which way the paper’s furious readership is inclined.

Meanwhile, in Athens, the levels of hatred towards the Euro-establishment from supporters of the “No” side are remarkable; it is hard to see how any meaningful negotiations will ever be possible if Syriza remains in power. For all of those deluded Europhiles who believed that enforcing an artificial, imperfect currency on 19 different, divergent nations was a good idea that would help bring about peace, friendship and prosperity, the events of the past few weeks have surely been devastating.

Greek PM Alexis Tsipras

The Eurosceptics were right; the problem now is that in the best case scenario the region will undergo years of painful convulsions, precipitating a new treaty that imposes greater centralisation and restrictions on the fiscal independence of nation states. Such a move would outrage Eurosceptics, needless to say, and could lead to a collapse of the whole project if it is rejected by voters, but it is the only hope for the single currency’s long-term survival. Reopening treaties properly would create a major opportunity for the UK, albeit one that may come too late for David Cameron’s renegotiation.

So what are the options after the Greek vote? If they vote No, it’s game over for Greece’s membership of the single currency. The country’s banks don’t have enough money to last for much longer, and there is little reason why the European Central Bank would wish to extend them billions more if it is snubbed by voters. Either the banks would have to stay shut, which means that the country will run out of food and essentials as it becomes impossible to pay for imports, or depositors would have to be bailed in, wiping out a large chunk of their wealth but recapitalising financial institutions.

The only other alternative would be for the Greek state to introduce IOUs and then a new physical currency, while re-denominating all Greek bank accounts into drachmas. The national debt, which is owed in euros, would explicitly be repudiated, triggering a major crisis and inflicting vast losses on the European Central Bank, IMF and other creditors. The new drachmas would, of course, plummet in value, and it would be hard to avoid widespread chaos and hyperinflation if the government is forced to crank up the printing presses to pay for its bills.

Long-term, however, a Grexit accompanied by a sound new currency could help transform the economy - but that would require a sensible, credible economic policy, rather than more of the same left-wing rabble-rousing.

If, on the other hand, Greece votes yes, the government will collapse and new elections called. The Europeans would pump money into the Greek banking system, allowing branches to reopen. But sensible Greeks would continue their run on the banks, draining the economy.

Worse, Greece would be unlikely to get the comprehensive debt write-off it needs, and bailout negotiations would drag on, with the country eventually plunging into another crisis. The Greeks may even elect another hard-left government, guaranteeing another showdown.

Sunday’s vote may be too close to call, but we already know that there will be no winners from the referendum, only losers.